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The Stock Market in May

One of the most famous sayings in the stock market is “Sell in May”, so it is no surprise that May is one of weakest months of the year for shares. There are only three months where, since 1970, the market has an average return of below zero – May is one of them (the others are June and September). On average the market falls -0.2% in this month, and the probability of a positive return in the month is below half at 47%.

It’s not immediately obvious why May has been historically weak for the stock market. The month is weak for most stock markets worldwide, so whatever the reason it’s unlikely to be anything UK-specific such as the timing of the UK’s financial year.

For investors the great significance of May is that it is the start of the weaker half of the year (historically the market over November to April greatly out-performs the period May to October). Some short-term investors, therefore, tend to reduce exposure to the stock market from May.

On average in May the market trades fairly flat for the first two weeks of the month, and then prices drift lower in the second half. The final trading day of the month, 30 May, has the distinction of being the weakest day for shares in the whole year.

Sectors & shares

Strong sectors relative to the general market in May tend to be Aerospace & Defense, Electricity and Food Producers; while the weaker sectors are: General Industrials and Life Insurance. At the stock level, companies that have historically been strong in May are: Cranswick, Babcock and 3i Group; while weak stocks have been: Taylor Wimpey, Sainsbury and Stagecoach.

Company announcements

May is the third busiest month for results announcements with 52 FTSE 350 companies releasing their final results.

FTSE 100 v S&P 500

Internationally, May is the weakest month of the year for the FTSE 100 Index relative to the S&P 500 Index; on average the UK index under-performs the US by 1.3 percentage points in May.

Diary

On the economics front, there will be the US Nonfarm payroll report on the 2nd, and the MPC interest rate announcement on the 8th. The MSCI quarterly index review is on the 14th. The 20th will see the 20th anniversary of the flotation of the JP Morgan Indian Investment Trust. And on the 5th and 26th of May you’ll have find something else to do as the LSE will be closed.